Don't Laugh: GE Will Be Next to Fail

In this type of environment, we will quickly find out what GE is made of.

In this article I wrote last year, I noted that GE is the ultimate unknowable stock.

I think that GE is very similar to AIG.  GE Capital drives GE.  They own tremendous amounts CDOs, CMBOs, etc.  It isn't transparent.  This junk has driven its growth.  This junk hasn't been written down.  GE is dependent on its triple-A rating.  It is very easy to see GE running into a situation where it needs to dispose of all of its prized assets to try to underwrite the liabilities that are on the books at GE Capital. 

Don't fool yourself into thinking that GE is something other than a financial interest.

They should be acting now to split the company in two to save the better half.  They are not.

Trend very carefully around GE.

Herman Kline
Herman Kline: Herman is a recent graduate of Wesleyan College with a strong interest in finance and firm belief that General Electric is a scam on the public perpetuated by Jack Welch and Jeff Immelt that will ultimately fail to do hidden off-balance sheet liabilities. Herman's favorite place is on the side of a mountain or rock climbing wall.

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Comments

  • Sam Cass

    September 16, 2008

    You might be right here. Wouldn't surprise me to have GE start to be mentioned in the news.

  • JRodgers

    September 16, 2008

    Never say never, but I would be surprised if GE falls into a death spiral. AIG is an insurance company that became more heavily leveraged that GE. It also has much greater commercial real estate exposure.

  • sagitarius84

    September 16, 2008

    That's of course total nonsense. GE is a diversified conglomerate with interests ranging from wind turbines and jet engines to light bulbs and finance. True finance does take up a significant amount of revenues and earnings but GE is not a financial company.
    By the way any company that has enjoyed a nice and stable rating is subject to failure. why? If you have a run on the bank type scenario where people tend to get nervous about GE, then rating agencies will start cutting ratings which will make it more difficult for GE to finance itself. By the way, there aren't any large corporations who do not rely on credit from outside forces that won't fail if their rating is cut. A typical run on the bank scenario..

  • Sam Cass

    September 16, 2008

    It depends on the amount of leverage the finance unit has. I agree that it's unlikely GE will into Lehman-type problems. But if the finance unit is levered up and runs into problems...who knows? I agree that a collapse is highly unlikely though.

    I don't think GE is a particularly good buy at the moment though. It's at half of its 52 week high and financial turbulence and a slowing global economy will hit many of its businesses. I think there's a good chance it will go lower.

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